AGRIBUSINESS

Dole out to raise some green

Plans by Dole Food Co. to sell shares to the public were triggered by a cash crunch for the nation's largest fresh produce business and its owner, billionaire David Murdock.

A review of Securities and Exchange Commission documents filed by the company and public statements by the 86-year-old Murdock reveal a combination of interlinked loans and heavy spending that threaten the heavily leveraged Dole's solvency.

"Our substantial indebtedness could adversely affect our operations, including our ability to perform under our debt obligations, and we may incur significant additional indebtedness," Westlake Village-based Dole said in an Aug. 14 regulatory filing. "We may be unable to generate sufficient cash flow to service our substantial debt obligations."

The company, with about $7 billion in annual revenue, has nearly $2 billion in debt and a high-risk credit rating.

Murdock has used the company to guarantee $205 million in loans to the tycoon's pet projects, including a luxury health resort in Westlake Village that suffered what he once described as "several hundred million dollars" in cost overruns during construction.

In recent years, he has spent $80 million refurbishing and rebranding two resorts on Lanai. He owns 98% of the Hawaiian island through his Castle & Cooke real estate company but has told reporters that he is losing upward of $20 million a year on his Lanai tourism and luxury home sales businesses.

"With all the projects he has going, it is probably a good analysis that he needs the money," said Scott Mushkin, an analyst with Jefferies & Co. in New York.

Murdock turned down requests to discuss the stock offering and finances, citing SEC regulations that govern what selling shareholders can say in advance of a stock sale.

For the six-month period ended June 20, Dole profit fell 19% to $123 million and its sales declined 11% to $3.3 billion, filings show.

But in its filings, the company said its prospects for the future are good, noting that it has the top or No. 2 market share position in many of its product categories and that fresh produce is a business consumers value.

"The worldwide fresh produce industry enjoys consistent underlying demand and favorable growth dynamics. In recent years, the market in the U.S. for fresh produce has increased faster than the rate of population growth, supported by ongoing trends including greater consumer demand for healthy, fresh and convenient foods," the company said.

Nonetheless, Dole's credit situation combined with Murdock's penchant for spending on diverse projects could make it harder for Dole and Goldman Sachs, the investment bank managing the offering, to find investors for the shares, analysts said.

"This is exactly the type of risk that investors are trying to stay away from at this point," said Paul Bard, head of research for Renaissance Capital in Greenwich, Conn.

Given the skittishness of the financial markets over the last 18 months, the offering would have to include a recapitalization plan that would reduce Dole's debt to a level investors would be confident could be supported by the company's cash flow and core produce business, he said.

In June, Dole declared a dividend of $15 million to Murdock through DHM Holding Co. Inc., Murdock's investment company. That triggered a clause in Dole's loan agreements that prohibited the company from paying future dividends. Dole also paid Murdock, who is the company's chairman, $2.7 million in salary and bonus last year.

Company documents -- including the filing that outlines the stock offering plan -- acknowledge the risks for potential investors.

The documents also address the interlinked loans, including provisions that trigger defaults on much of Dole's nearly $2 billion in borrowings if there are defaults on $115 million in loans to DHM Holding and an additional $90 million to Westlake Wellbeing Properties, the venture that runs the wellness center and its Four Seasons hotel.

"Lenders," Dole wrote in its filings, "could elect to declare all amounts outstanding to be immediately due and payable and terminate all commitments to extend further credit. . . . Dole cannot give assurance that its assets or cash flow would be sufficient to repay in full its outstanding indebtedness, in which event Dole likely would seek reorganization or protection under bankruptcy."

Dole said it planned to unwind the deals before consummating the offering, possibly through merging DHM with Dole and transferring Westlake Wellbeing into one of Murdock's other ventures.

The company said it planned to raise $500 million in the stock sale, but a spokesman said the number could change. The company plans to use the money to pay down debt, but it hasn't outlined how much would be used to pay Dole's loans and what Murdock would use to pay his obligations.

Dole had $108 million in cash on hand as of June 20, according to its SEC filings.